FEATURES FOCUS ON BELARUS

Focus on Belarus

Gaining tissue capacity in the Republic

Plus: TW visits Spartak following the completion of its tissue and paperboard integration plans

Top to bottom: Spartak’s premium toilet paper six and four pack; economy brand Yanka; Lilia’s economy brand 56m; premium brand Yanka; Spartak’s Z-fold brand for AfH

Belarus stands out of all the newly independent states of the former Soviet Union. This is the only country that preserved its industrial power avoiding the fate of other countries that for the last twenty years mostly scrapped their manufacturing capacity along the road to capitalism. With a population of 9.5m, Belarus was one of the most technologically advanced regions of the former USSR with an educated and skilled work force. The country makes its own brand of agricultural combine harvesters, tractors, off-road vehicles and military gear. While the lack of significant foreign investments holds back its modernisation process, Belarus continues to export internationally, primarily to Russia. Belarus is rich in forest resources (about one third of its land area), which accounts for 144 cubic meters per capita (about 2.2 times the world’s average) and only 2% of it is processed by the Belarus pulp and paper industry. However, the country is reliant on Russia: its major energy supplier, partner in the customs union and a source of pulp and waste paper for domestic tissue producers.

Market in Transition

The tissue segment in Belarus has been established over the last twenty years from two sources: old Soviet mills upgrading their assets and developing new products, and small privately owned companies starting up in the 1990s as converters with low cost equipment and using jumbo rolls from spot market. Private ownership prevails for small and medium size businesses, however the growing tissue manufacturing sector of the country’s paper industry remains mostly under government control.

According to Euromonitor International, 61% of the country’s $9m tissue retail sales are toilet paper, with other tissue products like towels and napkins making 32% in 2010. Annual per capita tissue consumption in Belarus is akin to Russia at about 1.6 kg. Tissue imports to Belarus in the form of higher quality virgin parent rolls, bath tissue, kitchen towels and napkins are insignificant if compared with incontinence goods from multinationals. Due to market saturation, nearly 40% of parent rolls made in Belarus are exported to Russia and the Baltics with some of it making its way to the Caucasian region and Central Asia. The rest is converted locally.

Multinationals maintained their leadership across all tissue categories in 2011 due to their strong financial support of product promotion and development, advertisement and brand recognition. Domestic companies compete only in the economy price segment with their brands positioned in low price range. Local tissue brands still have a longer way to go for public recognition, however, their sales have increased slightly in 2010 and 2011 because some consumers traded down due to the economic crisis.

Low priced economy tissue brands remained the most popular with consumers in Belarus during 2011. Despite the low unemployment rate, consumers in Belarus face lower disposable incomes than its mighty neighbour Russia. All the leading manufacturers and distributors within the tissue segment have budget brands or lower-end brands positioned at the standard price range in their product portfolios. The customer’s choice between price and quality retains a preference for products with lower price rather than higher quality.

Belarus’ tissue market with about 15,000 tonnes consumed per year is small, but showing high growth potential. According to Euromonitor International tissue retail sales in Belarus grew by average 18.2% during the six year period ending in 2011 to reach $9m. The growth rate, however, kept gradually declining from 23.5% in 2006 to 3.6% in 2011. The economic situation in Belarus through 2008-2009’s global financial crisis had a sound effect on retail tissue sales, as recovery in 2010 and 2011 still remained slow resulting in declined consumer spending.

Retail

Retail tissue volume, however, is expected to see positive growth from 4.0% in 2012 to 5.1% in 2015. The potential for volume growth comes from the fact that per capita consumption of tissue products is still lower in Belarus than in western European countries. On the positive side, the country’s own tissue producing capacity growth will be mainly supported by the ongoing local currency devaluation and rising price of imports.

The world economic crisis has not discouraged Belarusians from habits of modern grocery shopping gained during the independence years. Supermarkets and hypermarkets continue to gain popularity in the country while consumers increasingly choose their wider range of products, convenient locations, free parking, competitive prices and money saving promotions and discounts. Grocery shoppers in Belarus, however, would not be able to visit local Auchans, Metros, Tescos, Spars and Billas like their neighbours in Russia, Ukraine and Baltics. On the contrary the only “foreign” supermarket chains, like Perekrestok and Sedmoi Continent, represented in the country are Russian or Russian-Belorussian joint ventures. Belarus operates several locally originated in the 1990s and 2000s supermarket chains – Almi, Rublevskiy, Vester, Gippo, Preston Rodnaya Storona and ProStore with clean spacious stores locationed in downtowns and suburbs and good range of tissue supplies.

Almi Group is a Russian-Belorussian retail chain (founded in 2006), one of the biggest in Belarus with 33 supermarkets across the country. Depending on the size, the Almi stores offer tissue and hygiene products and claim its own brand of meats and bakery. Other major supermarket chains like the fastest growing Rublevskiy, created in 2003 (37 stores in Belarus) and partially financed by IFC, the international group affiliated with World Bank, and Vester (43 stores in Belarus and Russia), offer an extensive selection of multinational and local brands. Smaller supermarket chains (less than ten stores) like Preston and ProStore with English sounding names (and even logos in Latin, despite the country’s official Cyrillic alphabet) are actually Belorussian companies.

Maxima Grupe, a Lithuanian holding company that owns Maxima, the biggest retail chain in the Baltics with over 400 supermarkets in Estonia, Latvia and Lithuania, recently announced its intention to enter the Belorussian market.

Other non-grocery retailers, which include kiosks and outdoor markets, still remain the leading distribution channel for tissue products, due to the current overall shortage of modern retail outlets in Belarus. Currently private label tissue products such as toilet paper, kitchen towels and napkins do not have a significant presence in the regional supermarkets due to a high presence of very low cost economic brands and a lack of development and promotional capacity of local retailers. The Away from Home segment is still very small despite the country’s strong manufacturing industries and is growing slowly with the developing fast food restaurant business.

Manufacturing

Of the country’s list of 21 tissue product manufacturers only four can be considered fully integrated producers.

Spartak Paper Mill in Shklov (Mogilev Region) is the emerging paper industry leader both in tissue and corrugated board manufacturing. In February 2012 the company completed its ambitious plans to become a fully integrated tissue and paperboard producer by launching a stateof- the-art Italian made tissue machine (see field report below).

Tissue producer and converter Paperka Group, with annual capacity of approximately 10,000 tonnes of tissue paper in jumbo rolls and converted tissue products, operates two tissue machines with combined capacity of about 40 tonne per day. Two of the Paperka Group companies are directly involved in tissue product manufacturing: Munix makes jumbo rolls from secondary fibres and Solterom converts virgin and recycled tissue into final products. Paperka main tissue brand is Solte.

Paperka Group uses recovered fibre for toilet paper from local quality sources and buys virgin parent rolls from Russia for its napkin product line. This company is devoted to tissue manufacturing while the rest of the competing market players also produce containerboard and corrugated packaging. Paperka employs around 200 staff and was making 70% of parent rolls of recycled stock converted in Belarus. However, with the launch of a brand new A.Celli tissue line at Spartak mill in Shklov, Paperka will lose its leadership both in volume and quality.

The company Exclusive located in Grodno is a member of the governmentowned Bellesbumprom. This mill with 150 staff is an important new player in the Belarus consumer tissue market. The company was founded in 1997 and in two years had built a modern processing plant turning high quality waste paper from local sources and Russian imports into tissue parent rolls on Valmet tissue machine. The company makes 25 tonnes per day of 33- 35 g/m² tissue in parent rolls and converts a full line of tissue goods from recycled stock toilet rolls to virgin fibre napkins and pocket hankies under its own brand Myagkoye Udovolstviye (Soft Pleasure).

One of the largest and oldest paper mills in the country, Albertin, dedicates approximately 25% of its paper output to tissue making and converting (approx. 13.5 million rolls of toilet paper and 40 thousand kitchen towels per year), and it is also affiliated with Bellesbumprom and employs nearly 800 in Slonim. Established in 1806 in the Western part of the Russian Empire, the mill grew into a diversified paperboard and coated paper supplier, and currently uses one of its five PMs for tissue production. The PM4 Polish made Yankee TM was commissioned in 1961 and after several recent upgrades makes 800 tonnes of tissue per year at the maximum speed of 140 m/min and 23-35 g/ m² grammages. The mill makes toilet paper, kitchen towels and napkins from virgin and secondary fibre under its own brand Albertin using converting lines made in Russia and Poland.

About 90% of small tissue converters in Belarus (Bonpapir, Chumbars, Vaudaks, Bellat, Saorton, Lilia) produce meager quality toilet paper and napkins from waste paper. The strongest privately-owned producers like Sipto and Loriplus founded in the 1990s with access to better quality tissue stock and converting equipment, manufacture 2- and 3-ply toilet paper, kitchen towels and napkins in standard segment made from 100% virgin fibre.

Sipto was founded in 1994 and began making tissue products in 1999. In 2010 Sipto was ranked ninth in retail tissue (toilet paper and napkins) with a 2% value share in Belarus. The company follows all modern tissue trends and incorporates the latest equipment into its own brand Sipto (in Belarus, a large number of locally made consumer brands including Sipto, Solte from Paperka, Lux Max and Comfort from Loriplus, use Latin for product labeling to enhance the export value).


Field visit to Spartak Mill

Located 152 miles east of the Belarus capital Minsk, the small town of Shklov is known as the country’s paper industry hub after a greenfield tissue mill – the only one so far in the former Soviet Union domain not counting Russia – was launched. The town’s paper mill was founded in 1898 and in 1922 was named Spartak after the famous leader of gladiator revolt in ancient Rome. The mill survived Nazi occupation, the collapse of the Soviet Union, the following “perestroika” of the 1990s and the recent world economic crisis. Today Spartak apears as the leader in the country’s paper industry with modern manufacturing, and a young and educated work force of 648 (approximately half of its employees are younger than 30) and a growing revenue. The company’s paper machines, PM1 and PM2 are fully operational.

Largescale upgrade: Sergey Shumsky

In 2008 it started the first phase of a major modernisation. PM2 went through a complete overhaul and was upgraded by Capasa (Spain). It increased its production speed from 180 m/min to 400 m/min and the mill’s ecological impact was reduced by introducing process water cleaning and recirculation. The second phase began in 2010 with converting equipment from Chyau Ban Machinery (Taiwan), which can produce 10 tonnes per day of packaged tissue products. Spartak now runs an automatic toilet roll and kitchen towel converting line including core forming machine and 240mm by 240mm napkin folding line with 4-colour flexo printing. It completed the project in February 2012 with the launch of a new PM1 tissue machine.

Spartak’s Shklov-based mill where investment has exceeded $43m.

The tissue machine was supplied by A. Celli, a crescent former with 2.85m trim, 10ft diameter cast Yankee cylinder and a hood from Novimpianti Drying Technology. PM1’s operation speed for virgin fibre stock is 900m/min, when using secondary fibre from waste paper the machine slows down to 650m/min.The total investment in the mill over its entire project life exceeded $43m.

TW interviewed Sergey Shumsky, Spartak’s director. He says: “We did not experience the 2009-2010 crisis which strongly affected tissue suppliers in Belarus. During this period we were extremely busy upgrading the mill’s machinery and structures, installing new equipment and training personnel while still maintaining commercial output.” With a new tissue machine, he adds that the company has “reached a high quality of tissue product”. (Spartak has achieved 70% whiteness in tissue from waste paper). “That may totally change our marketing strategy for kitchen towels. We will follow the European premium kitchen towel guidelines and will market them as 100% white embossed with no printing, colour or scent,” he says. “Despite the fact that selling quality parent rolls is good business, we plan to convert the main bulk of it at the mill. Currently we are in the process of developing own brand Yanka.” Spartak is currently working on financing its next purchase – a Fabio Perini converting line for toilet rolls and kitchen towels.

The mill, committed to run both virgin and recycled fibre products, lines up its strategy with raw material suppliers. With the monthly call for about 1,700 tonnes of waste paper Spartak procures nearly 90% of it locally buying the rest from Russia. Virgin stock pulp will come from Archangelsk Pulp and Paper Mill (Russia) and Baltic Pulp & Paper OU (Estonia).

Spartak’s energy policy follows current trends in the paper industry and is another subject of pride for Shumsky. “In December 2009 we started up our own power substation at Spartak supplying heat and steam to the process. Two Jenbacher (Austria) 1.8MW piston engines in a sound-proof box using natural gas and cogeneration concept with 92% efficiency, provide an extra six tonnes of steam per hour.” He adds that the company also uses low cost energy for its mill and supplies heat and hot water for the adjacent residential part of Shklov.

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